UPDATE 1-Singapore takes new steps to cool housing, bank lending

Friday, 5 Oct 2012 | 7:33 AM ET

SHARES

By Kevin Lim and Eveline Danubrata

SINGAPORE, Oct 5 (Reuters) - Singapore introduced on Friday measures to prevent a bubble in its housing market and ensure more prudent lending by banks after property prices rose at a faster pace in the third quarter.

Beginning on Saturday, the maximum tenure of all new residential property loans will be capped at 35 years, with loans exceeding 30 years facing significantly tighter loan-to-value limits, the Monetary Authority of Singapore (MAS) said in a statement.

Other measures introduced by the authority, the country's central bank, included a lower loan-to-value ratio for residential property loans taken up by companies and other non-individual borrowers.

"We are taking this step now to require more prudent lending, and will continue to watch the property market carefully," MAS Chairman Tharman Shanmugaratnam said in the statement.

"We will do what it takes to cool the market, and avoid a bubble that will eventually hurt borrowers and destabilise our financial system."

Tharman, who is also deputy prime minister and finance minister, said quantitative easing by central banks and low interest rates had resulted in easy credit but the situation would eventually change.

Singapore interest rates are near record lows and home buyers can pay as little as 1 percent per annum on their mortgages.

"Over the last three years, the average tenure for new residential property loans has increased from 25 to 29 years. More than 45 percent of new residential property loans granted by financial institutions have tenures exceeding 30 years," the central bank added.

Singapore did not previously set a maximum duration for property loans and the longest maturity currently available for homes in the city-state is a 50-year loan offered by United Overseas Bank .

Singapore private home prices rose 0.5 percent in the third quarter from the April-June quarter when prices increased by 0.4 percent, while resale prices of government-built Housing and Development Board (HDB) apartments leapt 2.0 percent quarter-on-quarter following a gain of 1.3 percent in April-June.

Private residential prices have risen 55 percent since hitting a trough in the second quarter of 2009 in the aftermath of the global financial crisis. HDB apartment resale prices have jumped 43 percent after a relatively mild correction in the first quarter of 2009.

SPECULATION

"In my view, it's more of a pre-emptive prudential policy measure to ensure households do not get too exposed to the recent lengthening of mortgage durations by financial institutions," said Maybank head of FX research Saktiandi Supaat.

He said the latest measure appeared more aimed at capping household debt exposure than keeping a lid on property prices.

Colin Tan, head of research and consultancy at Chesterton Suntec International, said the measures affected speculators more than buyers looking for a place to stay.

"The long-term loans encourage speculation because you can borrow for a long time at very low repayments," Tan said.

Singapore in September took steps to ensure developers build apartments of different sizes rather than just tiny "shoebox" units that were more popular with investors and speculators because of their lower cost.

The last comprehensive set of real estate cooling measures were introduced in December last year when the government imposed an additional 10 percent stamp duty on the property value that buyers who were not Singapore citizens or permanent residents had to pay.